Buy: Futures Contract Example

By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000.

Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels). buy futures contract example

Profits and losses are calculated and settled in your account at the end of every trading day. By harvest, corn hits $6

Because you control a large asset with a small deposit, small price changes can lead to significant gains or losses that may exceed your initial investment. Buying Example: The Cereal Manufacturer (Hedging) Profits and losses are calculated and settled in

Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.

The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel .